Last week I shared some frustration seeing the sharp decline of portfolio value. One commentator asked a good question: "... how would you really feel if you lose 10%, 20% or even 30% in the market in a span of months? How about 50%?"
Fair question. In the midst of this market turmoil, we all should have the same gut check. Will you be comfortable with another wave of sudden and significant deterioraton of personal wealth? Or should you leave the market for the peace of mind?
To this end, BusinessWeek's recent interview with John Bogle, founder of the Vanguard Group, offers some real insight. Here are some quotes:
On Why One Shouldn't Leave the Market Now
Even if I was pretty confident that the decline will continue—and I think it's more likely than not—you've not only got to get out right, you've also got to get in right. You must be right twice. So if you get out now, and the market goes way down another 15 or 20%, which is quite possible, they will be so scared they won't get in. So I'm a stay-the-course person.
On How About Converting Everything to CD for Dependable Income
First of all, you'll probably end up paying a lot of capital gains taxes. And you might be right.
But on the other hand, what are you going to do next? A good bit of this decline has occurred. If you could get out and get into CDs when the market was 10% higher than it is now, that would have been a nice thing to have done. But people weren't thinking that way then. You're always bullish at the highs and bearish on the way down. So you're buying at the highs and selling at the lows. What sense does that make?
On Whether Market Will Drop Another 15%
The market takes on a certain momentum and it could happen. I didn't say it would happen. I said it could happen. In a stock market, believe me, anything can happen! Confidence changes. You measure confidence by the price-to-earnings multiple and it's probably gone from 18 to 16 here, down about 10%. The long-term average is around 15.
On How The Recent Meltdown Compares To 1987
1987 was nothing, really. Think about it. In a short period—one day—it was pretty much all over. The market went down a little less than 25%. But by the end of the year, it was up 3%. 1987 was an up year in the market. I don't think this one will be. But if people are saying that it could be like 1987, they should pray that it is!